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Dim Sum Express Summary (Sept 18, 2018)

Core Content Overview

The Dim Sum Express report from GF Securities provides a comprehensive analysis of the equity market, focusing on key indices, A/H-share performance, and sector-specific insights. It highlights the current state of the macroeconomic environment, industry trends, and investment opportunities across various sectors such as Auto, Leisure, Machinery, and Home Appliances.

Key Index Performance

• The HSI and HSCEI both experienced a 10%+ YTD decline, indicating a slowdown in the Hong Kong market.
• MXCN, SHSZ300, and SZCOMP also saw significant declines, with SZCOMP down 27.3% YTD.
• INDU, SPX, and CCMP showed positive performance, with CCMP experiencing the highest 18E EPS growth at 84.5%.
• The UKX and NKY indices had mixed performance, with UKX showing a -5% YTD decline and NKY up 1.4%.

A/H-Share Market Insights

Auto Sector

• Coach sales in China dropped 29.6% YoY in August, with new energy coaches being a major drag.
• Bus sales remained in line with June and July but still below May levels.
• Coach exports increased by 8.2% YoY in 8M18, but sales volume in August was down 4.4% YoY.
• Seat coaches are expected to be a key profit driver, despite a 13% YoY decline in sales.
• Heavy-duty truck leaders such as CNHTC Jinan Truck and Weichai Power are recommended due to sales stability and profitability.

Leisure Sector

• The SW Leisure Services sector declined 17.6% since July, underperforming the SHCOMP by 9.3pp.
• P/E ratio for the sector dropped to 30x from 39x in July, indicating a valuation decline.
• Domestic tour companies are expected to recover, especially during the golden week.
• Outbound travel to Korea rebounded, while Japan and Thailand/Vietnam saw slower growth.
• Hotels are expected to shift from high-beta to high-alpha due to higher room rates, M&A activity, and scale advantages.

Light Industry

• Full-decoration apartments are growing due to policy support, with a projected 20% penetration rate by 2020.
• The full-home decoration market is expected to grow from Rmb136.1bn in 2017 to Rmb186.2bn by 2020.
• The furniture segment is expected to benefit from the increased demand for basic furniture and full-decoration.

Home Appliances

• The home appliance sector outperformed the CSI 300 by 1.5pp last week.
• White goods saw a 0.6% increase, while audio equipment declined 1.0%.
• Home appliance exports rose 4.6% YoY in 1H18, indicating solid demand.
• Leaders such as Midea Group, Haier, and Gree Electric Appliances are recommended due to strong market position and growth potential.

Key Investment Highlights

• Auto & Auto Components: Recommend Inovance Technology, Xinje Electric, Hongfa Technology, Liangxin Electrical, and Megmeet Electrical due to growth in industrial automation and policy support.
• Machinery: Highlight Sany Heavy Industry for its core business focus and investment in intelligent manufacturing.
• Leisure Sector: Recommend China International Travel, Songcheng Performance Development, Jinjiang International Hotels Development, and BTG Hotels Group for clear M&A plans and strong earnings visibility.
• Home Appliances: Suggest Midea Group, Haier, and Gree Electric Appliances for their dominant market positions and growth prospects.

Areas to Watch

1. Export value decline could negatively impact the industrial sector.
2. Infrastructure recovery may fall short of expectations due to policy controls and project delays.
3. Weak consumption remains a concern for the leisure sector.

Rating Definitions

• Company Ratings:

  • Buy: Expected to outperform benchmark by more than 15%.
  • Accumulate: Expected to outperform benchmark by 5-15%.
  • Hold: Expected relative performance between -5% and 5%.
  • Underperform: Expected to underperform benchmark by more than 5%.

• Sector Ratings:

  • Positive: Expected to outperform benchmark by more than 10%.
  • Neutral: Expected relative performance between -10% and 10%.
  • Cautious: Expected to underperform benchmark by more than 10%.

Disclaimer

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• It is intended for GF Securities clients and may not be allowed in certain jurisdictions.
• The research report does not take into account individual investment objectives or financial situations.
• Investments involve risks, and returns may vary.
• GF Securities accepts no liability for losses arising from the use of this report, unless excluded by law.

Copyright

• This report is copyrighted by GF Securities (Hong Kong) Brokerage Limited.
• No part of the materials may be copied, reproduced, or re-disseminated without prior written consent.